An Introduction to Exporting From the UK to China
A breif kind to help small businesses with the first steps to trading in China's lucrative markets
China has been held up by the western media as the global growth engine. While China is not only about low cost manufacturing, its market is still fairly hard to reach for small businesses. Exporting from the to China is a huge topic that covers everything from laws and regulations to a distinct culture and consumer behaviour. This article gives you an idea about the obstacles you face when reaching out to the 1.3 billion Chinese consumers.
Choose a Model
There are many different models for reaching the Chinese market. Many UK exporters assume that you need to enter a joint-venture with a Chinese company in order to get market access, which is not true, though it is one of the options. Let’s look at this and others:
Establishing a joint venture with a local partner
Why? Some industries are regulated and foreign companies are required to partner with a local company in order to gain market access. Establishing a joint venture in China is a big deal – too big to be covered in this article.
Selling through a Wholly Foreign Owned Enterprise (WFOE])that’s owned directly by your British company
China has high registered capital requirements for foreign owned companies. If you wish to set up in a first tier city such as Shanghai, Shenzhen, or Beijing you shouldn’t expect to get away with less than $100, 000. However, its not a deposit, you are free to use the capital for your business operations.
Selling through a Chinese distributor
This option does not require you to set up any Chinese company at all and allows you to sell directly from your home shore. At the same time, you can ride on the back of your distributor’s logistics network. This could be an attractive option for testing the market before a larger push.
Don’t Set Up a Rep Office
A few years ago it was common to get around the capital requirements and other regulations by simply setting up a “Representative Office”. This is still accepted if you are actually representing your company and nothing else. It could work as a temporary solution while scouting opportunities but trying to market, distribute, and import products using a Rep Office can get you shut down.
Manufacturing in the UK or Manufacturing in China, for China?
It’s no secret that China has high tariffs towards foreign imports. At the same time, the Chinese market is price sensitive and you can never assume that a Chinese customer is ready to pay the same price as your western buyers. A way to cut costs can be to manufacture products in China, for China. You don’t need to set up the factory yourself since the production can be outsourced. However, you will need to set up a local company to buy and sell the products within the country.
Chinese customers are often willing to pay more for foreign brands. Larger companies can get away with manufacturing in China, for China, and still retain their “foreignness”. This will certainly be harder for smaller and/or little known brands. Chinese customers are not stupid, and local produce is not regarded as highly as truly foreign brands. If you are trying to present your product as distinctly British, it could instead be better to start off small and cater to the limited, but wealthy, upper class and keep production at home.
Not registering your trademarks can be a huge mistake. Trademark squatting (somebody registering your trademark) is common and can force your products off the shelves unless you “buy it back”. There are even cases where companies importing from China have had their shipment halted in the Chinese customs since somebody registered their trademark.
Exporting from the UK to China takes a lot more than simply listing a few products on Alibaba. At the same time, you will be exposed to risks such as “trademark squatting” and setting up the wrong type of business entity. Before you start contacting potential buyers or partners, you must decide which approach is suitable for your business.
Fredrik Grönkvist is the co-founder of ChinaImportal.com, a Shanghai based information services company